Techniques for Assessing and Prioritizing Third Party Risks

Techniques for Assessing and Prioritizing Third Party Risks

By: Beaconer, May 22, 2024

Techniques for Assessing and Prioritizing Third Party Risks

TPRM, or third-party risk management, is a widespread category that comes with the core steps of your company undertaking practices in terms of preventing data breaches and preservation of business continuity. A few of the general issues with third party risk management are where the companies are examining daily legal issues, creditworthiness, and historical performances. Additionally, cybersecurity and minimized third-party security threats are growing extremely critical.

As reported by Gartner, around 60% of companies work with over 1,000 third parties, and the numbers continue increasing as business ecosystems expand and become more complex. A potential third-party risk assessment and management process would guarantee that the vendor evaluation process stays updated with sensitive data safeguarded by the company’s risk management approach.


Overview of Third-Party Risk

Third-party risk indicates the risks entering into your business due to the relationships with consultants, contractors, service providers, or different forms of vendors your company is operating within the course of the routine business operations. The public agency with the ease of access to the key data is related towards making bigger announcements and it involves the third and fourth party risks.

Are they the ones accessing the notable parts of the network? Are they the providers of the cloud-based security solution? Any vendors or suppliers you are engaging in for the functioning of your business process can impose great third party threats.

What is Third-Party Risk Assessment?

To know about the definition along with the necessity of third party risk management services, you should initially keep a note of the causes of this kind of risk. Depending on their capacities, numerous companies outsourcing a couple of functions to the parties are included here. These third parties include subcontractors, vendors, suppliers, distributors, resellers, affiliates, and more. So, what is the reason behind companies outsourcing specific operations?

To reduce the expenses, pace up the production process, distribution, and sales or increase the profits significantly would lead the firm to gain a competitive edge across the distinctive industries. Commonly, the companies would outsource, enabling them to aim at the main areas of the skills, leveraging the expertise of the providers, and incorporating their entire offerings.

After these third parties are included in the support of their service offerings, you can arrive at the company’s risk management program. The global market size for third-party risk management was valued at $6 billion in 2023 and is projected to grow by 15% between 2024 and 2032.

Here, you need strong third party due diligence to help your company determine the risk associated with third parties. The streamlined risk assessment program will help your business reduce the third-party risks to your growth and operations.

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Why Should You Do a Third-Party Risk Assessment?

It is important to create and maintain third-party relationships that arrive with a series of risks.

The risks involved are reputation, management, strategy, economic stress, and information security. Numerous risks include data compromise, the detrimental and damaging impacts of non-compliance, illegal use of information through the parties, and irregularities in supply chain management.

Typically, globalization across industrial operations has led third parties to emerge throughout the globe. The graph of the operation and the distribution-linked risks are noted across the upward trend. The artificial, natural, and deliberate disruption across different parts of the modern world would negatively impact the production and services offered by the business.

Whenever multinational companies lack strong risk management programs to handle third-party risks, they face economic and reputational losses. This significantly creates a requirement for potential risk assessment and management tasks entailing the search for the best-associated evaluation services.

How to Perform a Third-Party Risk Assessment

Now that you know about the risk management and assessment process, so what is the reason for performing one? Let us find out more about what the process entails here.

Establish Vendor Risk Criteria

It is essential to establish a list of vendor risk criteria. It should effectively include the destructive third-party risks that your company would encounter. For example, the companies who manage or outsource their confidential data should have numerous information security risks being part of the criteria for vendor risk.

Therefore, it will inform your company’s scope of risk assessment. Furthermore, it would impact the strategies and actions with the tactics you can use for the vendor or third-party risk assessment. It is based on this form of risk criteria where you can funnel down the vendor or the third-party choices. 

It would help you reduce the other steps involved in the risk management programs that classify the vendors. Fundamentally, you can create your actionable list of the high-risk third parties with whom you will perform this due diligence.

Conduct Third-Party Onboarding and Screening

It would help if you created a thorough picture of vendor or third-party relations to predict and safeguard against possible risks. The initial step is to mandate the standard processes involved with risk management throughout the firm.

The experts suggest that you plan out a third-party risk management program with this framework, which can help standardize every third-party screening and onboarding process. You can use the detailed approach for real-time risk inspection and containment measures.

You will find a win-win situation with the appropriately designed frameworks for the robust risk management program as follows:

  • You can stay abreast of the possible third-party risks before the risk assessments
  • A framework for the risk management program can help in the optimization of time and undertaking proper risk assessments.

Make Risk Assessments Easier to Manage

You should always ensure the quality of the assessments involved with the simple check-box assessments is not enough, with the quality of the assessments directly impacting your risk management program. It is for this reason that you should extensively evaluate whether any vendor poses a risk, why they are so, and how they would address such risks. An agreement made with the risky third party warrants careful and consistent monitoring.

You need the help of specialized experts who can help evaluate the data gathered. For instance, professionals from tech, policy, cybersecurity, or account backgrounds would conduct holistic analyses and issue detailed reports. These days, potential companies deploy their entire time to these risk analysis programs.

Assess Performance Results, Not Only Risks

The outcomes are the symptoms of whether and to what extent your third-party relations form a threat. For example, the ratings involved with information security will allow you to consistently supervise compliance and unpredictable risks to the vendors.

In such an instant, you will have contracts from several third parties that will  keep a watch on the compliance scores and information security as follows:

  • Boosting and easing the third-party risk assessment programs
  • Noting the faults with security shape
  • Demand for solutions to the risky issues involving the third parties.

Leverage the Power of Technology

The availability of resources and capital is the key prerequisite to undertaking strict vendor risk assessments. To save on expenses, consider purchasing and deploying software that would ease the whole process of third-party evaluation and management.

Technology offering core assessment services can help standardize the cross-departmental framework for risk assessment across the company. The use of technology is essential for conducting thorough and holistic risk management and assessment.

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Irrespective of the size of your firm, it is more likely to maintain robust business relationships with third parties who can assist you in streamlining your operations. However, the exchanging of operational data and confidential information with external suppliers or vendors puts the data at risk of exploitation and misuse, adding further risk to the equation. Therefore, it is mandatory for businesses to under proper risk assessment and management programs.

Author Bio

Nagaraj Kuppuswamy

Nagaraj Kuppuswamy is the Co-founder and CEO of Beaconer, an esteemed enterprise specializing in managed third-party risk using the cloud native AI based solution. With an extensive portfolio of accolades and industry certifications, Nagaraj stands out as a seasoned expert, boasting over 16 years of dedicated involvement in the field of Cybersecurity. Throughout the course of their career, he has predominantly focused on elevating the realm of third-party risk assessment.


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